Nigeria - Banking and securities

In 1892, Nigeria's first bank, the African Banking Corp., was
established, patterned along British lines. Before World War II, two
large British banks, the Bank of British West Africa and Barclays Bank,
virtually monopolized Nigerian banking. After 1945, a number of
African-owned banks entered the field; between 1946 and 1952, however,
more than 20 such banks failed. The bank of issue became the Central
Bank of Nigeria (CBN) in 1958. It regulated most commercial banking
operations in Nigeria, but the federal Ministry of Finance retained
control of most international activities of the financial sector. The
Nigerian Industrial Development Bank (NIDB) was established in 1964 to
provides long-and medium-term financing to concerns in the industrial
nonpetroleum, mining, and tourist sectors.

The 1969 Banking Decree required that all banking institutions be
incorporated in Nigeria, and a 1976 law gave the government 60%
ownership of all foreign banks. The Banking Decree also established
minimum capital requirements for licensed banks, based on the total
deposits. Important additional sources of credit were provided by thrift
and loan societies and by the branches of the National Development
Corporation. The National Bank for Commerce and Industry helped finance
smaller enterprises. Merchant banking expanded rapidly from 1973 onward,
when the Union Dominican Trust Company began operations.

With the adoption of the Structural Adjustment Program (SAP) in 1986,
the licensing of new banks was liberalized. In July 1990 the state banks
were privatized. Beginning in 1990 the country allowed the establishment
of foreign banks, but sixty percent of the foreign banks that were
established in Nigeria had to be held by Nigerian interests. In the same
year the government began a program to establish 500 community banks.
From 1985 to 1993, the number of banks rose from 40 to 120, but declined
to 89 in 1998.

While there are over 100 banks in Nigeria, the main banks in 2002
included the Afribank, Universal Trust Bank, FSB International Bank,
Diamond Bank Limited, United Bank for Africa (with Banque Nationale de
Paris and Bankers Trust shareholdings), Union Bank of Nigeria, and First
Bank of Nigeria (partly owned by Standard Chartered), Nigeria
International Bank Limited. All but the last bank on the list were
charged in 1996 with import duty and excise collection. Twenty-seven
ailing banks were liquidated by the government in 1997, while others
merged. The International Monetary Fund reports that in 2001, currency
and demand deposits—an aggregate commonly known as M1—were
equal to $7.3 billion. In that same year, M2—an aggregate equal
to M1 plus savings deposits, small time deposits, and money market
mutual funds—was $11.8 billion. The money market rate, the rate
at which financial institutions lend to one another in the short term,
was 20.5%.

The Nigerian (formerly Lagos) Stock Exchange (NSE) began operations on 1
July 1961, following passage of the Lagos Stock Exchange Act; the
government promulgated regulations for the exchange and provided that
all dealings in stock be carried out only by members of the exchange.
The Securities and Exchange Commission (SEC) fixed prices of all new
securities, and regulated the prices of those already being traded.
Transactions of 50,000 shares or more were subject to SEC approval. The
government encouraged public issues of shares by Nigerian companies in
an effort to mobilize local capital for the country's
development. The exchange, in Lagos, with branches in Kaduna and Port
Harcourt, dealt in government stocks and in shares of public companies
registered in Nigeria. After the provision of new investment incentives
under the Nigerian Enterprises Promotion Decree of April 1974, activity
on the stock exchange increased.

In a bid to encourage foreign interest in the NSE, a computerized
central securities clearing system (CSCS) was installed on 14 April
1997, although it got off to a quiet start. The custodian bank for the
system was Nigeria International Bank/Citibank. The benefit of the
system was that trades would be settled within one week and eventually
within two days, compared with the long delays hitherto experienced in
effecting share transfers after purchases and sales. On 21 April 1997, a
CBN directive lifted the restrictions on equity ownership of individual
and corporate investors in Nigerian banks. Under this legislation, it
was possible for an individual or another corporation to own up to a
100% share in a bank. Prior to the directive, the maximum shareholding
for an individual was just 10%, while for companies it was 30%.

Market capitalization of the Nigerian Stock Exchange was $5.4 billion in
2001, up 27.5% from the previous year. The NSE All Share Index was up
35% in 2001, at 10,963.1